Legislative and Regulatory Reform Bill - Standing Committee A

[Mr. Martin Caton in the Chair]

Legislative and Regulatory Reform Bill

Clause 19 - principles

Question proposed, That the clause stand part of the Bill.

Oliver Heald: Clause 19 takes us into a different area. Conservative Members welcomed the decision in the 2004 budget to ask Philip Hampton to consider the scope for reducing administrative burdens, and particularly to focus on efficiency, regulatory inspections and enforcement. The central tenet in the Hampton report was that excellence in regulation requires entrenchment of the principle of risk assessment. He pointed to the need for better focused inspection activity, more use of advice for business, a reduction in form-filling requirements and more consistent penalties. Philip Hampton rightly praised—as we should—the independence and integrity of British regulators.
One of Philip Hampton’s principal recommendations was that regulators should follow what he described as the principles of regulatory enforcement. He produced a practical list that is easy to understand, that anyone can follow and that is useful to business. I intend to probe the Minister about why the Government did not adopt his list. It covers 10 or 11 points, such as that regulators and the regulatory system as a whole should use complex risk assessment to concentrate resources on the areas that need them most. The whole idea of risk assessment is now well understood in industry and among regulators. As for ensuring accountability, he said that regulators should be accountable and that all regulations should be written so that they are easily understood, implemented and enforced. He said that there should be no inspection without a reason, that businesses should not have to give unnecessary information nor the same information twice, that regulators should provide authoritative accessible advice easily and cheaply, and so on.
The wording under clause 19(2) is much abbreviated from those recommendations. It is vague and woolly in comparison with that detailed checklist. For example, there is no reference to the comprehensive risk assessment nor to accountability. It is arguable that the subsection breaches Hampton’s third principle, which was that regulations should be easily understood, easily implemented and easily enforced.
I understand that the Government’s better regulation commission came up with five principles of good regulation that are based on Hampton’s review. They are set out under subsection (2)(a) and (b). Will the Minister explain why those five principles are recommended under the Bill rather than those contained in the practical list suggested by Philip Hampton and tell us what subsection (3) is about? It is probably designed to exempt the Financial Services Authority from having to follow good regulatory practice. The Association of British Insurers says that it is often supportive of the FSA’s approach, but that there have been occasions when its decisions have not been consistent with the principles of good regulation. It gives the example of detailed rules applying to the sale of general insurance products, such as motor insurance, which it says are disproportionate for highly competitive markets. Although the ABI supports clause 19, in general, it says that subsection (3) may have the effect to some extent of letting the FSA off. I should be grateful if the Minister could tell us whether that is the Government’s intention and, if so, explain why. Is it the Chancellor’s wish or does the law require it?
In his report, Philip Hampton included many other recommendations beyond the application of the principles of regulatory enforcement—for example, that penalties should be based on risk assessment; that the resources released from risk-based assessment should be spent on advice services for business; that there should be consultation about forms; that each time a form is produced, regulators should state how long it would take to complete it; that there should be improved data-sharing between regulators to avoid constantly having to give the same information over and again; that there should be no updates of IT by regulators without scrutiny to ensure that they are not doing incompatible things; that regulatory impact assessments should include practicability of enforcement; and a lot of other recommendations that I shall not read out.
The Hampton report is probably being implemented in three ways: through clause 19, through the code in clause 20 and by upgrading the enforcement concordat, which is the voluntary code that came from local authorities. It was designed to encourage business-friendly enforcement by them, and is a well developed procedure.
Will the Minister put the clause into the context of the three strands, and explain where we should expect Hampton’s recommendations to be found and why he has gone for the five principles rather than the longer but more practical list produced by Philip Hampton?

David Heath: Good morning, Mr. Caton. As the hon. Member for North-East Hertfordshire (Mr. Heald) said, we are now moving to a part of the Bill on which there is likely to be more consensus than there was on part 1. Indeed, if the Bill consisted only of parts 2 and 3, it would be considered uncontroversial or as something that might have gone through on a statutory instrument, rather than with the examination of the House.
Without wishing to repeat the points made by the hon. Member for North-East Hertfordshire—that would be entirely otiose—I support his contention that there is something extremely odd about subsection (3). A clear duty is laid out in subsections (1) and (2), but it is not expressed in detail; it is very general. It would be hard to argue that the regulator should act in a way that is not transparent, accountable, proportionate and consistent, and it would be hard to suggest that a regulator should target its activities at cases for which action is not needed.
Why do we need an exclusion and exemption that apparently allows some unknown regulator to have a requirement that falls outside those very general and benign categories? That does not make sense, unless there is a specific case that the Minister can tell us about to explain why that exemption is needed. Even then, he would need to persuade us that we should give licence to the Government to give a regulator powers that fall outside the very broad principles encapsulated in subsection (2).

Oliver Heald: Does the hon. Gentleman agree that quite a number of regulators are set up with statutes that include all sorts of requirements? One of the hopes that clause 19 gives us is that it will lead to regulators acting consistently and in accordance with those promises. If, simply because a statute states that they have to do a particular thing, that does not apply, that will run a coach and horses through the provision. We are talking about the big regulators.

David Heath: I agree entirely. If we are to set out principles on which we agree, we cannot trim them to meet the statute; if it falls outside them, the statute must be altered to meet the principle, otherwise the Bill and the clause are pointless. I hope that the Minister will explain subsection (3). To save time, I should say that there is a similar provision in subsection (3) of the following clause, and I would not wish us to have exactly the same debate twice. That subsection, again, contains the exception that another requirement may require the regulatory function to fall outside the code of conduct, which, of course, derives from the principles in clause 19.
If we are to have a code of conduct, we cannot have a particular regulator saying, “I read your code of conduct but I am required to act in this untransparent, unaccountable, disproportionate and inconsistent way because the Minister who set up the regulatory function chose to couch our requirements in that way”. The Minister must address that issue. I hope that I have not strayed too far into the next clause stand part debate in suggesting that consolidating the two debates might help the Committee.

Christopher Chope: I would like to follow the same theme as the two hon. Members who have spoken. For the benefit of those who have not read the Hampton report from cover to cover—I plead guilty to that—page 40 of the Library research paper contains a box that sets out Hampton’s principles of inspection and enforcement. As those principles are important and are the result of a detailed review that the Government say was spot on, I  expected them to be included in clause 19, but they are not. Will the Minister explain why each recommendation of the Hampton report is not included in the principles set out under clause 19(2)?
 The first principle in the Hampton review states:
“Regulators, and the regulatory system as a whole, should use comprehensive risk assessment to concentrate resources on the areas that need them most”.
Why is there no reference to the need to use comprehensive risk assessment in the clause? Why does the only reference in clause 19 to need not include reference to what is needed most? There could be masses of needs, but the essence of Hampton’s recommendations is that there should be prioritisation.
The Parliamentary Under-Secretary of State for the Cabinet Office (Mr. Jim Murphy) indicated assent.

Christopher Chope: I am pleased to see that the Minister is agreeing with that. I hope that he will agree to bring forward on Report a broader version of clause 19 that would include all the principles set out in the Hampton review.
The second of Hampton’s principles states:
“Regulators should be accountable for the efficiency and effectiveness of their activities, while remaining independent in the decisions they take”.
There is no reference to efficiency and effectiveness in the clause. Why is that the case?
The next recommendation stated:
“All regulations should be written so that they are easily understood, easily implemented, and easily enforced, and all interested parties should be consulted when they are being drafted”.
Again, that is not replicated in the clause, nor is Hampton’s next requirement:
“No inspection should take place without a reason”.
That is an important safeguard for those who feel oppressed by the weight of regulation and regulatory enforcement bodies. Effectively, Hampton is recommending that, unless there is a good reason, no business organisation should be subject to a knock on the door in the middle of the night or, indeed, in the middle of the working day, when it could cause much disruption.
Hampton also stated:
“Businesses should not have to give unnecessary information, nor give the same piece of information twice”.
I am sure that all members of the Committee would sign up to that. Why is that safeguard not included in the clause?
 The review went on to recommend:
“The few businesses that persistently break regulations should be identified quickly, and face proportionate and meaningful sanctions”.
Although the word “proportionate” is included in clause 19(2)(a), it is not qualified or explained in accordance with what Hampton had in mind:
“Regulators should provide authoritative, accessible advice easily and cheaply”.
There is no requirement on regulators to do so in clause 19.
The Hampton review then said:
“When new policies are being developed, explicit consideration should be given to how they can be enforced using existing systems and data to minimise the administrative burden imposed”.
That is not reflected in the drafting of clause 19, nor is the requirement that
“regulators should be of the right size and scope”
and that
“no new regulator should be created where an existing one can do the work”.
The last of the principles set out in a helpful box on page 40 of the Library research paper is:
“Regulators should recognise that a key element of their activity will be to allow, or even encourage, economic progress and only to intervene when there is a clear case for protection.”
I should have thought that that was the most fundamental of all.
The overarching justification that the Chancellor of the Exchequer articulated when he set up the review and accepted its recommendations was that regulation should not stand in the way of economic progress; regulatory activities should be carried out in a way that encourages and facilitates economic progress. One might link the omission of that requirement or safeguard from clause 19 with something that the Minister said in response to an intervention during an earlier debate in Committee proceedings. He said that the Government had it in mind to introduce minimum penalties for health and safety breaches.
When I had the privilege to serve on the Health and Safety Commission, its ethos and that of the Health and Safety Executive centred on prevention rather than interference and intimidation. When health and safety inspectors made their regular visits to premises, they would often give friendly advice to the management of those businesses. They would not go there with the objective of raising enough money to pay their salaries and imposing a lot of penalties.
It is fair to say that even this august organisation probably has areas with which a health and safety inspector could find fault. If he were required by the Government to impose a minimum penalty every time he found fault, the bill could rise significantly. The Government have admitted that they might bring in minimum penalties for health and safety breaches, removing the discretion of health and safety inspectors. Coupled with the failure to incorporate into the Bill the important safeguard that regulators should recognise that a key element of their activity is to allow or even encourage economic progress, that causes a lot of suspicion—on my part at least.
Some of us argued during debate on part 1 of the Bill that the Government’s wider ambitions did not concern improving the effectiveness of our economy so much as enabling Ministers to get off early at the end of the working week. The absence of key recommendations from the Hampton review from clause 19 bears out our concerns.
I hope that when the Minister responds on clause 19, he will explain why clause 19 does not apply to all the regulatory functions set out in clause 22(5). If the Hampton principles are so valid and important, why  are they not to apply to organisations such as the Office of Rail Regulation? You, Mr. Caton, may have seen a report in the press this week saying that the Office of Rail Regulation imposed a penalty of £250,000 on Network Rail for technical breaches involving a failure to update redundant records. The records were handed over and had been replaced, but apparently because the old records were still there, there was an obligation to keep them up to date. It is accepted that it was a technical, rather than a substantive, breach—in other words, just the sort of breach that Hampton would have said should not be subject to regulatory enforcement or result in regulatory penalties. But what happened? A fine of £250,000 was imposed by the Office of Rail Regulation. That is effectively a fine of £250,000 on the travelling public, because it will inevitably end up in the fare box, together with all the costs—from both sides—resulting from Network Rail fighting against that judgment.
This is an important clause and there are important principles at stake. I cannot understand why the Government are taking the power to change those principles, nor why they have not incorporated within those principles the recommendations of the Hampton review, which I thought were accepted as being common ground by Government.

Martin Caton: Order. This is turning into a debate on the whole of part 2. I am happy to go along with that, but would then say that if hon. Members wish to make contributions about any aspect of part 2, it would be appropriate to do it in this common debate.

Oliver Heald: On a point of order, Mr. Caton. Should we not be able to make points on, for example, the procedure to be followed under the code of practice, and matters of that sort, which are not to do with the general principles of part 2, but which are none the less important? I hope that it is not your ruling that there will be no debate on clauses 20 to 23, because there are important points to be considered.

Martin Caton: I stand corrected by the Committee; I take it that the Committee’s will is to deal with the clauses separately, so we will do exactly that.

Douglas Carswell: I welcome the fact that the clause puts emphasis on making the regulators accountable, but I would like to hear from the Minister exactly how the accountability will be delivered. Just saying that
“Any person exercising a regulatory function”
must have regard to the principle of accountability does not deliver proper accountability. Increasingly, there is a tendency for elected parliamentarians to push responsibilities that ought to be exercised by those vulnerable at the ballot box towards regulators and quangos. Increasingly, regulators such as the Food Standards Agency, the Financial Services Authority, the Qualifications and Curriculum Authority and the Health and Safety Executive are making decisions that should be made by those  accountable to the people of the country. I am keen to hear how the Minister intends to ensure that the super new regulators are made accountable.
If we create new super regulators, there is an even greater need to make sure that they are accountable, because when regulators are merged into larger regulators, there is a tendency to increase the amount and intrusiveness of their regulation. The need to hold them to account is therefore all the more important.
I am interested in how the Minister envisages these big regulators being truly accountable. There are a number of suggestions on how to do that that I do not believe are in the Bill. One suggestion is to ensure that the heads of the Financial Services Authority or other super regulators are appointed by House of Commons Committees in open, televised confirmation hearings. That is the sort of mechanism through which to deliver real accountability. I will be interested to hear how the Minister intends to deliver on the principle of accountability in the clause.

Jim Murphy: Good morning, Mr. Caton. It is the last morning of these proceedings and I am relieved—

Andrew Love: We are all relieved.

Jim Murphy: I am relieved that we are not having a stand part debate on one part of the Bill, but instead we have the opportunity to have clause stand part debates so that we can discuss the details within this important part of the Bill. Perhaps it is not highly controversial, but it is important nevertheless. I shall make some comments and in so doing respond to the entirely reasonable questions asked by Opposition Members.
As has rightly been said, clause 19 provides that any person exercising specified regulatory functions must have regard to the five principles in the exercise of those functions. The principles provide that regulatory functions should be carried out in a way that is transparent, accountable, proportionate, consistent and targeted only at cases in which action is needed. Given the variety of functions regulators have and the variety of contexts in which they operate, inconsistency of approach is a real risk and can cause difficulties for those regulated. I heard comments and responses regarding inconsistency regularly when we consulted on the Bill last summer, and during the past couple of weeks when I met business organisations and companies, particularly in relation to the way in which regulators in different parts of the country operate their proceedings and fulfil their responsibilities.
Therefore, we would like to set a baseline standard for regulatory work, and those principles support the Government’s aim of bringing about risk-based, proportionate and targeted regulation. The establishment of the principles on a statutory basis is not unprecedented, as hon. Members will be aware. They already exist on a statutory footing in section 3 of the Communications Act 2003 and derive from the Better Regulation Task Force’s five principles of good regulation. The principles already exist in the 2003 Act and they are widely regarded as the gold standard for judging regulation, not only by Departments,  regulators and organisations in the UK, but also in several other countries including Ireland and Germany.
Clause 19 requires anyone exercising specified regulatory functions to have regard to the principles, which means that they are under a statutory duty to consider the principles when exercising their regulatory functions. Failure to comply with this statutory duty could, of course, be challenged by way of judicial review in the usual way.
The hon. Member for North-East Hertfordshire and others made specific points about the effect of subsection (3). Its effect is that the statutory duty to have regard to the principles will be subject to any other requirement affecting the exercise of the regulatory function, such as another statutory duty or European Community law requirements. This means that, in the event of overlapping obligations, any other requirement affecting the exercise of the regulatory function to which clause 19 applies takes priority over the duty to have regard to the principles. That ensures legal certainty for those exercising—

Oliver Heald: The effect of it is of course is to let off the big boys—the Financial Services Authority and the other big regulators that have been set up by statute—and often they are the ones that people are most worried about. Does the Minister have any plans on that? What is the idea longer term as regards the big regulators? Is he happy that they can just go on acting in an excessive way, not following the principles that he believes in? Are we not going to do anything about it?

Jim Murphy: Clause 19(3) is intended to ensure that the code does not accidentally rewrite other legislative requirements or put us, for example, in infraction regarding EU directives. An example of the purpose of subsection (3) is that the Rural Payments Agency is required to inspect 5 per cent. of farms’ subsidies under the common agricultural policy. That, of course, is not risk-based and to allow the principles of clause 19 to override that directive would put us in infraction procedures.

Andrew Love: The Financial Services Authority has been mentioned on several occasions, yet the Financial Services Markets Act 2000 was subject not only to pre-legislative scrutiny, but perhaps to the greatest amount of scrutiny that this House has shown—certainly since this Government came to power. Such scrutiny is subject to review, and to change it through this Bill would be contrary to everything that we had done to scrutinise the Bill in the first place.

Jim Murphy: My hon. Friend is absolutely right. Regulators such as the FSA have specific statutory obligations, to which he has alluded. The regulators were empowered through strenuous scrutiny, and their statutory obligations are fit for their specific purpose, as my hon. Friend the Member for Edmonton  (Mr. Love) again alluded. We do not seek to rewrite or override them in this clause; it is about establishing principles that are regarded as effective.

David Heath: I just want to be clear in what respect the regulations that apply to the FSA fall outside those broad principles.

Jim Murphy: I am not in a position to talk about the different regulatory principles or responsibilities of each regulator—whether or not they are covered by this clause. Its purpose is to establish those principles, put them on a statutory basis and, in so doing, not to override the responsibilities and activities of other regulators that are formed by other Acts.
Paragraph (3) is about enabling legal certainty for regulators and the regulated, so it is clear that although the principles would apply and should be followed, where they clash with the existing principles and practices of some regulators, their existing statutory responsibilities will override the principles in the clause. It is important that we do that.

Oliver Heald: I understand that in this provision, it may be difficult for the Minister to tackle the big boys. However, it would be helpful if he were able to say, “We do have a plan. We are going to sort out the big boys—the substantial regulators set up by statute—and make sure that they do follow these principles.” If some provision about the FSA or some other regulatory body clashes with the Hampton principles or the five principles, surely it is the job of the Cabinet Office to find out and sort them out.

Jim Murphy: It is not our intention to erode the independence from the Government of those regulators set up by statute.
I shall turn to additional questions that have been asked about the Hampton principles. The hon. Member for Christchurch (Mr. Chope) in particular quite rightly talked about them at some length, alluding to 11 or 12 of the Hampton principles of inspection and enforcement. We tried to put in legal terms the Hampton principles, but the wording was not easily transferable to legal language. The five principles set out in the clause are the principles of the Better Regulation Task Force.
The code will cover the specific points about which the hon. Gentleman asked. The principles will exist on a statutory basis, and the code would then expand on and deal with the specifics dealt with in the Hampton principles of inspection and enforcement. We will consult about the code later in the year. That is the purpose of having the principles and then enabling the code so that it can pick up on some of the Hampton principles of inspection and enforcement. That is the right way to do it.

Christopher Chope: The Minister says that because of a drafting difficulty, he is not putting the Hampton principles in the Bill. Surely, if a legally enforceable code is to be drawn up instead, exactly the same drafting difficulties will arise.

Jim Murphy: Our intention is to consult later this year on the specific nature of the code. If we had placed a prescriptive code in the Bill, Opposition Members would understandably and rightly ask why we had not consulted, why we had not sought and listened to opinions. The intention is to consult the regulators and the regulated on the specific nature and content of the code, which will be guided by the principles of inspection and enforcement set out by Philip Hampton.
Of course, not all the recommendations in the report require legislation. Some are about good practice, so not all of them would be appropriate for inclusion on a statutory basis. Nevertheless, the change in culture behind the Hampton principles and the suggestions included in them will find a place in the code. The issue is partly about drafting to include the Hampton principles and partly about a determination to consult.

Christopher Chope: In the past, it has been the practice of Ministers when debating Bills like this one, which refers to a code, to produce for our benefit a copy of a draft code. Will the Minister undertake to produce a draft code before we reach Report so that we can determine exactly what the Government have in mind and to what extent we may wish to incorporate in the Bill provisions from the Hampton recommendations that are not included in the draft code?

Jim Murphy: I am not certain that I will be able to do that. However, to reassure the hon. Gentleman, I can say that the Minister must seek to ensure that the draft code is consistent with the principles in clause 19, and that we will carry out a wide consultation throughout the country about the content and the specifics of any draft code. We are listening to business and to others to ensure that we get it absolutely right.
The hon. Gentleman discussed specifics of the Hampton principles and asked whether regulation would be risk-based. The risk-based issue is dealt with by the principle of targets. The idea would be to target those companies that have had a less than illuminating track record of compliance. The inclusion of targets would incorporate the risk-based element.

Christopher Chope: But would it? If the Hampton suggestion is that regulation should be targeted on those cases where action is needed most, the Minister’s point would be covered, but subsection (2)(b) states that
“regulatory activities should be targeted only at cases in which action is needed.”
Why is not the word “most” included there?

Jim Murphy: The targets would be based on an assessment by the regulator, who has a knowledge of the field in which they regulate. He will target only those cases that he believes it is appropriate to target according to the principles. There is some flexibility for the regulator to apply targeting.
As Philip Hampton discovered, the problem is that fewer than half of the regulators in his review used a risk assessment to reduce enforcement activity on high-performing businesses. For example, according to figures from the Hampton review, in 2002-03,  trading standards officers inspected 60 per cent. of high-risk premises and 10 per cent. of businesses classified as low risk, but that resulted in 35,000 inspections of high-risk companies and 71,000 inspections of low-risk companies. That is not the appropriate way for regulators to carry out their duties.
Possibly we all have experience from our constituencies of businesses that may have been operating for two decades with a clean bill of health but that are continually inspected. We are moving towards inspectors targeting their resources more effectively.

Oliver Heald: Surely the absolute key is the comprehensive risk assessment. If one asked any of the regulators, they would say, “Oh yes, we’re certainly aiming at the cases where some regulation is needed.” The point, however, is that many of them have not done a comprehensive risk assessment—as the Minister just said—so they are not doing that. What is needed is for the concept of the comprehensive risk assessment to be brought right to the centre of the Bill.

Jim Murphy: I do not share that assessment. The combination of the principles of targeting and of proportionate activity means that regulators will be expected, on a statutory basis, to carry out their activity in a way that is risk based. The specific way that that approach operates will be in the code, on which we shall consult. To be a little more generous to the hon. Member for Christchurch, I shall take up his suggestion of trying to have a draft code available in time for the Report stage, which he may find helpful.

David Heath: I am not convinced by the earlier part of the Minister’s response. There was a lengthy explanation of why there are some large and complicated regulators that are set up by statute. The hon. Member for Edmonton intervened to point out the care with which Parliament had scrutinised the power and functions of the Financial Services Authority, and I entirely understand that. I would even understand it if—were the code of conduct written in sufficiently explicit terms—instances arose when the way in which a specific regulator was required to act by statute fell outwith the specific requirements of the code of conduct. In such a case there might be some form of tension between the two, and that might–though I do not think that it should—require an exemption.
I cannot understand, however—nor can I find an argument to support it—why any regulatory body should fall outside the very broad principles that we are considering, whatever the statute says in setting up that body. If the statute allows a regulator to act in a way that is not transparent, or in a way that is unaccountable, disproportionate, or inconsistent, that is intolerable. Surely we cannot accept a regulator that works in that way—if this Committee is to mean anything, or if the Minister’s intentions are to mean anything. If that is the case, then whatever the statute may say, it should be amended to bring it into compliance with those very broad terms.
The Minister is asking us to accept that because a regulator has a very complicated function, it is all right for that regulator to act in an intolerable way. I do not accept that, and I hope that a court would not accept it. By accepting clause 19(3) we would be giving a get-out clause.
I am willing to argue the case with the Minister on clause 20(3), when we come to it, because he may have a better argument—though it depends on how the explicit the code of conduct will be. He would also have more of a case had he given a longer list of principles and had he provided for much more complex requirements under clause 19; but given how simple and self-evidently proper the principles are under clause 19(2), I do not think that he has a case for any exemption if we are to have proper governance.

Oliver Heald: If we deleted clause 19(3) as an amendment on Report, the effect would be that if any of the bodies set up by statute did not act in accordance with the five principles, the law of implied repeal would mean that their statutes were, by implication, repealed. I do not know whether the parts that were necessary to bring the five principles into force would actually apply. Is the hon. Gentleman’s view the same?

David Heath: Had I sufficient legal knowledge, I am sure that I would agree with the hon. Gentleman. [Interruption.] My hon. Friend the Member for Cambridge (David Howarth) is muttering from a sedentary position, and the hon. Member for North-East Hertfordshire is right. My hon. Friend is the guru in this matter.
I hope that hon. Gentleman agrees that, unless we have a much more satisfactory explanation than we have had today, we will have to return to this matter on Report and get rid of subsection (3). I am willing to entertain an argument on the details of the code of conduct. It would be wrong to invalidate the actions of a regulator, simply because a specific requirement in the code of conduct was at variance with the practice required by statute. We can return to that matter and debate it sensibly. However, I hope that the Minister will consider the point that he is asking the Committee to accept—that regulators can act in a wholly improper way. I do not accept that and I do not think that the Committee should.

Oliver Heald: Mr. Caton, this has been a useful debate that has covered the points that I was thinking of raising under clause 20, as well as those under clause 19, so perhaps your earlier ruling was, to that extent, prescient and forward thinking.
I welcome the Minister’s offering to produce a draft code of practice to give us an idea of where, between the Bill and the code, he is to place the Hampton recommendations. I thank him for that, but I am concerned about two points. First, in subsection (2), the five principles set out are those that the Better Regulation Commission has been promoting, rather than the more detailed checklist that Philip Hampton  came up with in his report and called “principles of inspection and enforcement”. His list is a much more practical and useful checklist.

Douglas Carswell: Does my hon. Friend share my disappointment that the Minister has yet to explain how the principle of accountability will be delivered? How will the regulators be made democratically accountable? I suggested, somewhat impertinently perhaps, that the Minister might like to consider televised parliamentary hearings for appointments to these new super-quangos. There are other suggestions. Perhaps annual budgets for the regulators—

Martin Caton: Order. This is turning into a speech.

Oliver Heald: On a very good point, Mr. Caton, which is that accountability was one of the key principles that Philip Hampton referred to when he said:
“Regulators should be accountable for the efficiency and effectiveness of their activities, while remaining independent in the decisions they take”.
I think that we would all agree that their independence is important. None the less, most of the big regulators were set up by Parliament and we are entitled to review their activities and change them if we wish.
On the individual activities of regulators, there is a lot to be said, particularly in respect of the major ones, for having confirmation hearings to ensure that the people who take on such roles at the top level are fit for purpose. Certainly, there have been examples in the past—none of which I am going to recount, because I am fully aware of your requirements, Mr. Caton—where regulators have been either over-officious or slack. Having said that, the question for the Minister is why not include the Hampton principles of inspection and enforcement in the Bill.
I recognise the Minister’s point that there may be some drafting difficulties or areas where it is not possible to fully put those principles into force in the Bill, but if he is producing a statutory code, it must be possible to put a lot of that into the sort of language we use in Parliament. If that is so, why not include it in the Bill?

Andrew Love: There would be some concern if all the additional issues were included in clause 19(2); the Government would no doubt be accused of being too prescriptive. The Minister made a point about consultation. If this were included in the Bill, it would not be subject to consultation, whereas if it is in the codes that go along with the Bill, there will be a real opportunity to consult widely to ensure that we get it absolutely right.

Oliver Heald: I am all in favour of consultation; I think it is important to consult on such matters. It is entirely up to the Government to decide when they will introduce legislation and what will be the time scale for the Bill. However, the parliamentary Session is likely to go on until later in the year, so it is not beyond the wit of man to have consultation on a code and still be in time to include it in the Bill.
I take on board the hon. Gentleman’s point. This should probably be a schedule, rather than part of clause 19. However, what is being asked for could be achieved. It would help us, because I want to be sure that every one of the principles of inspection and enforcement that Philip Hampton came up with is implemented. If a law is needed to do that, I want that to be in the Bill.

Christopher Chope: Does my hon. Friend share my pleasure that the Minister has agreed to produce a draft code in time for Report? Does he also agree that it would be desirable for that draft code to be produced sufficiently far in advance of the Report stage for us to be able to table new clauses or amendments in light of its contents?

Oliver Heald: That would obviously be very helpful. It is likely that there will be some delay between the end of the Committee stage and Report, and I share my hon. Friend’s hope that the time scale would allow for that.

Jim Murphy: I have not sought to encourage hon. Members to give way in Committee, but let me say that I will undertake to do what has perfectly reasonably been asked for, which is to produce a draft of the code in good time so that Committee members, and other Members, can consider it and table amendments if they so wish.

Oliver Heald: That is exactly what my hon. Friend the Member for Christchurch requested, so I thank the Minister very much for that.

Christopher Chope: That is an excellent suggestion. The Government Whip has now returned. In light of the fact that there may now be a much more extensive debate on this issue on Report than was previously expected, I hope that he will accept that it might be appropriate for that stage to last for two days, rather than one.

Oliver Heald: I would not dream of trespassing on the work of the usual channels, but I certainly think that my hon. Friend is right on that.
I shall now move on to my second point about clause 19. The exclusion in subsection (3) that lets the big boys off is not acceptable. Regulators such as the Financial Services Authority and some of the other “Ofs” should behave reasonably. That is all that subsection (2) asks them to do. Surely they would want to be “transparent”—or maybe they would not? Surely they would want to be “accountable”—in fact, I do not think they would like that much—and “proportionate and consistent”? Possibly, they would also like to target what they are doing. They should be setting an example. The regulators should not be let off; they ought to be the pioneer corps and the trailblazers, not the ones letting the side down. Will the Minister just have a think about subsection (3)? I am tempted to seek to remove it on Report, because that would force them to behave.

Question put and agreed to.
Clause 19 ordered to stand part of the Bill.

Clause 20 - Code of practice

Question proposed, That the clause stand part of the Bill.

Christopher Chope: May I ask the Minister to expand on the effectiveness of the sanctions described in the clause for breaches of the code of practice? It seems that breaches of the code of practice that result in additional costs on business will not enable businesses to claim for the consequential damages arising from breaches of the code. The most that they can hope for is that any breaches of the code could be used as mitigation of penalties imposed. I understand that quite often the Office of Fair Trading will put forward proposals and if they are not accepted by the parties involved, it will say, “If you do not accept these, we will insist on higher penalties.” So it will effectively exercise a process of extortion on the people whom it is investigating.
If we are to have regulators who will operate outwith this code of practice, surely there should be an effective sanction. When I studied jurisprudence, one of the principles that we looked at was that there is no point having a command without a sanction. If the Minister accepts that principle, can he point out where the effective sanctions are for breaches of the code of practice under the clause?

Jim Murphy: Very briefly, under the clause, regulators who fail to comply with the statutory duty to have regard to the code of practice in circumstances where they are required to do so could be challenged through judicial review in the usual way. Subsection (4) states that
“a court or tribunal finds that a person has failed to comply with any requirement, restriction or condition”.
That subsection derives from the 2001 Act. It seems to have operated pretty effectively in that Act. If the hon. Gentleman has evidence to the contrary, he is entirely free to bring it to the attention of the Committee or of the House on Report. Failure to act in the proper way by regulators is judicially reviewable and it is within the 2001 Act.

Christopher Chope: Will the Minister accept that the process of going to judicial review is incredible expensive? Does he expect a corner shop or a small manufacturing business that is subject to oppressive behaviour by a regulator in breach of the code of practice to employ expensive lawyers and to go through the process of judicial review to get an effective sanction for the breaches of the code?

Jim Murphy: I do not think that I am advocating that, but this provision is lifted directly from the 2001 Act. I am willing to be corrected, but I understand that it was not identified during the consultation and the deliberations on the Bill as an inherent weakness in the 2001 Act. If he has evidence that it is and that it has prevented the better regulation agenda, he is entirely free to bring it to the attention of the Committee and the House.

Oliver Heald: I have been listening to the point that the Minister was making. I wonder whether subsection (4) does not provide some sort of remedy. It seems to be saying that the court or tribunal dealing with a breach of duty by a company would be able to take account of the way in which the regulatory function had been exercised in deciding how to deal with the case. Does that not mean that it would be possible for the court to make a quite penal decision on costs against the regulator? If so—if the regulator had to pay not just his own costs but those of the person victimised or treated in the wrong way—that would be at least some movement in the right direction. Is that what the Minister had in mind?

Jim Murphy: That is entirely the case. I should also like to reassure the hon. Member for Christchurch that non-legal sanctions exist on regulators, including National Audit Office and Audit Commission reports. Those are additional pressures and areas of accountability and respect for regulators. If the hon. Gentleman has evidence that that aspect of the 2001 Act has not worked and has been a deterrent, he is entirely at liberty to bring that evidence to the House’s attention before Report.

Question put and agreed to.
Clause 20 ordered to stand part of the Bill.

Clause 21 - Code of practice: procedure

Question proposed, That the clause stand part of the Bill.

Oliver Heald: Clause 21 sets out the procedure for introducing the draft code and making it law. It provides for consultation and the laying of the draft. It was not clear to me, however, whether what is proposed in subsection (5) is the negative procedure. I think that it is. If so, perhaps the Minister might explain why.
The Minister knows that many in the House are keen that all the principles of inspection and enforcement in the Hampton report should become part either of the code or of the statute. Given that they may need to be in the code, those of us in the House who are interested in regulatory reform will want to check that everything that should be in there is in there. If it is not, we might want to complain about it, debate it and ensure that the code goes as far as it should.
My experience of the negative procedure is that we do not get a debate every time we pray against an order. The last time that I looked at the statistics, it was something like 35 times out of 2,000. I may be wrong—it may be slightly different—but it is something like that. What can the Minister say to us about the procedure in subsection (5)? Is it negative, and if so, why? Surely it should be affirmative. Will he think about that or at least guarantee that if we did pray against it, there would be a debate?

David Heath: The hon. Gentleman is absolutely right that prayers are seldom answered in this place, although I must say as a matter of information that next week I have a prayer against an order on the civil courts and full recovery of costs, which will be debated. Unfortunately, since then I have been reshuffled in my responsibilities, so it will fall to someone else to do it. However, that is a different matter.

Oliver Heald: I am sure that the Committee would like to congratulate the hon. Gentleman on his appointment as Liberal Democrat shadow Leader of the House. I understand that he is running for the deputy leadership, and I am sure that we all give him our best wishes for good luck.

David Heath: I am grateful, although I am not sure that that will actually assist my candidacy.
The negative procedure is less appropriate than the affirmative when bringing the code of practice into effect; that is absolutely right. I shall go back a stage, however, because there is also the issue of the consultation process. The only specific consultees allowed for under the Bill are the regulators, who may be considered to have a rather partial view of how they carry out their functions. Of course we need to talk to the regulators about how the code of practice affects them, but there is a much wider range of bodies among the deregulated, and they have a much more material interest in the code of practice being right. In preparing for the Bill, the Minister gained quite a broad database of consultees; I hope that they will be
“such other persons as he considers appropriate”
for the purposes of subsection (3), and that they will have the opportunity to respond to the draft code of practice when it is published.
I also hope that, whatever procedure we eventually arrive at for the consideration of the code of practice, we will follow the process suggested for part 1 of the Bill, by which consultation responses are made available to the relevant Members of the House that will consider it. That way, we can be clear about whether the code of practice meets the concerns of those who are regulated. That seems a critical part of the process.
Mr. Murphyindicated assent.

David Heath: The Minister is nodding, so I am hopeful of a positive response; all is sweetness and light this morning.
It is desperately important that we hear what the effect will be, particularly on small businesses. For many of us they are the prime concern, because it is they who carry the greatest burden of regulation. We need an effective way of knowing how the provisions will affect them, and whether it meets their requirements in reducing the burden on them.

Jim Murphy: I, too, congratulate the hon. Gentleman on becoming shadow Leader of the House. I was not aware that he was standing for deputy leadership of his party, but that explains why he did not publicly support any of the leadership candidates;  that way he could say, “I was on your side all the time; congratulations”, or, “It’s a shame you didn’t win, but I was with you.” Perhaps I am being too cynical. All Committee members have seen how the hon. Gentleman applies his politics and how he approaches things, and we wish him luck in his deputy leadership ambitions.
 Clause 21 sets out the procedural requirements that a Minister must follow when proposing to issue or revise a code of practice under clause 20. I assure the hon. Member for Somerton and Frome (Mr. Heath) that consultation on the code of conduct will, of course, be guided by best practice on the code of conduct, which we discussed earlier. It is my understanding that responses to the consultation on the code of conduct will be made public, in the way that I have already mentioned. There is a responsibility to publish them, so, yes, the process will be conducted openly and transparently.
The hon. Member for North-East Hertfordshire is absolutely correct: first, the Minister must consult on the draft code of conduct, and then, following consultation, if the Minister decides to proceed with the draft, in its original form or in a modified one, the draft must be laid before Parliament and is subject to the negative procedure. That is consistent with the procedure set out in clause 10(4) of the Regulatory Reform Act 2001. However, I hear what both Front Benchers say about prayers never being answered—although I thought that our attendance here was in answer to our prayers, and that we had all sought divine intervention to be allowed membership of this Committee. The hon. Member for North-East Hertfordshire reasonably asked whether it would not be more appropriate for such a code of practice to be laid under the affirmative procedure, and I will reflect on whether that would be appropriate as a means of strengthening what was in the 2001 Act and placing a more onerous procedural responsibility in the Bill. I hope that that reassures and heartens him in some way.

Oliver Heald: Yes, that is welcome.

Question put and agreed to.

Clause 21 ordered to stand part of the Bill.

Clause 22 - Functions to which sections 19 and 22 apply

Question proposed, That the clause stand part of the Bill.

David Heath: I shall be brief. I simply want an explanation of the list in subsection (5). We have already gone through the process iteratively with clauses 19 and 20 with regard to the need to exempt some of our most important regulators from provisions that are supposed to regulate the regulators. We now have a new group of “off-limits” that are not to be regulated. I looked for further guidance in the explanatory notes and in paragraph 70 it says that the reason why the order may not specify regulatory functions on these five bodies is:
“The Minister cannot specify in the order the regulatory functions”
of those five bodies, which, as an explanation, falls a little short of what is required. I would be grateful if the Minister expanded on that a little.

Oliver Heald: I was going to ask why the “Ofs” have been let off. Perhaps I might also ask the Minister why it is necessary to specify the functions in this way. Clause 23 defines regulatory functions; why is it not the case that anyone who exercises one of them is caught under clauses 19 and 20? What is the point of the Minister interfering to say who is specified as a regulator in this way? Why not just say that all regulators are covered?
The overall scheme of the provisions introduces absolutely classic, sensible and proportionate principles on which regulators are supposed to act, so why does the Minister need to say which regulatory functions they apply to? Why can the provisions not apply to all of them? Is there a point that we are missing here? The big boys of the “Ofs”, such as the Gas and Electricity Markets Authority, Ofcom, and Ofrail—what is it called? [Laughter.] Something like that. The Postal Services Commission is known as something; I do not think it is Ofpost. I know that the Water Services Regulation Authority is popularly known and not loved as Ofwat. Why are the “Ofs” being let off?

Christopher Chope: I want to follow on from that point. Surely, every body that exercises a regulatory function under the definition of clause 23 should be included unless specifically excluded. The Government are saying, “Only those regulatory bodies that exercise particular regulatory functions that we think should be subject to this code are to be included.”
I want to ask the Minister about some specific examples. Her Majesty’s Revenue and Customs is carrying out regulatory functions in accordance with clause 23. Does the Minister have it in mind that those functions should be subject to the principles and code of practice set out in part 2 of the Bill? The Department for Work and Pensions carries out functions as defined in clause 23 and we know that it has caused an enormous amount of angst for many of our constituents in the process of carrying out those functions. Will its activities be subject to the principles set out in part 2? Will the Department for Environment, Food and Rural Affairs, or the Child Support Agency, for example, be subject to the regulatory controls set out in part 2?
 I congratulate the hon. Member for Somerton and Frome on his well-deserved elevation. He mentioned the specific bodies set out in subsection (5). Does the Minister accept my point on clause 19, that the Office of Rail Regulation has recently been guilty of a gross breach of the Hampton principles in imposing a fine of £250,000 on Network Rail for technical breaches of regulatory requirements? If he accepts that, does he not think that, in the context of the Bill, we should be doing something to ensure that that cannot happen again?
Similarly, the Postal Services Commission is now actively engaging in imposing substantial financial penalties on Royal Mail, with the consequence that the cost to Royal Mail users increases. Does the Minister not think that the Postal Services Commission should have to comply with the principles set out in part 2? I hope that the Minister will address each of those important examples.

Jim Murphy: Rather than make a speech, I shall respond to the points made by Opposition Members. Those bodies were listed in clause 22(5) for two reasons. First, they were not covered by the Hampton review, because their work is so different in its nature and scope from the general business regulators that Hampton dealt with. They are not intended to be caught by the Hampton recommendations and the principles and code cannot automatically be applied to them. Secondly, those regulators are operating in areas of market security and sensitivity, so it is important to avoid creating uncertainty about the rules governing the exercise of their powers.
On the point about regulatory functions, we would all have difficulty in dealing with specific aspects of part 2, particularly the definition of a regulator. The obvious initial approach is to list the organisations and come up with a definition of a regulator, rather than make a list or a definition of a regulatory function. In attempting to draft an appropriate definition of a regulator, it became apparent that definition would inadvertently capture a wide range of bodies outside the scope of the Hampton review. It may help Committee members to know that the Government’s assessment was that the best attempt at defining a regulator ended up capturing organisations such as MI5, which I am not certain would need to be transparent in all its dealings, the General Medical Council, the British Medical Association and others. That is why we set out to define a regulatory function, rather than a regulator.

David Heath: The Minister is in danger of exempting so many genuine regulators from his list that it brings into disrepute the whole concept. I wonder whether he considered the alternative, most obvious, route of having a schedule of regulatory bodies that are included, to avoid the difficulty in respect of the MI5s of this world, which I accept might have difficulties following the principles. However, I do not accept that the five bodies in subsection (5) should have any problem following the principles; if they are not following them, they should not be doing the job.

Jim Murphy: I give way to the hon. Member for Harwich (Mr. Carswell).

Douglas Carswell: I am surprised that the Minister dismisses the idea that our security services should be made more transparent and accountable. Perhaps if they had been made more so, they might have a slightly better, more successful record of spotting threats to this country. Accountability and transparency are good things for all institutions.

Jim Murphy: The hon. Gentleman’s point is entirely spurious and ill judged. However, it is for him to make his own points in his own way about the security services and the Bill. Such issues are, of course, outwith the scope of the Bill, and I do not think you would encourage us to debate them, Mr. Caton.

Oliver Heald: Does the Minister have any thoughts about which regulators he does or does not want to cover? If so, will he let us know? It would be helpful to have some idea. We are committed to the idea that the principles, which we agree are important, should cover regulators generally. The Minister is right to say that an infelicitous definition might drag in somebody whom we would all agree should not be covered. However, we do not want to let off the most important regulators in the country; as I said, we would like to see them as the trailblazers that set the standard.

Jim Murphy: The regulators that we have in mind are listed in annexe B of the Hampton report; that may help the hon. Gentleman. He can reflect on whether that list is appropriate between now and Report.

Christopher Chope: I do not have annexe B of the Hampton report with me, so can the Minister confirm that it includes Her Majesty’s Revenue and Customs, the Department for Work and Pensions, the Child Support Agency and the other examples to which I referred? If it does not, why not?

Jim Murphy: I confirm that the list does not include the organisations mentioned by the hon. Gentleman. However, this very afternoon I shall post him, for his information, a copy of the report with annexe B. A Minister would have to consult those whose functions will be listed, and the affirmative procedure for orders would be followed.
As we know, the aspect of part 2 that we are discussing is highly technical. Clauses 19 and 20 set out the regulatory principles and code of practice, which are defined and described in clause 23; clause 22(2) specifies a regulatory function
“to which sections 19 and 20 apply.”
As I say, the Minister must consult and lay an order—that will be done through the affirmative procedure, so must be agreed by both Houses—and specify any  exemption and how it affects the devolution settlement throughout the United Kingdom. We think that more appropriate than providing an extensive list of regulators, as suggested by the hon. Member for Somerton and Frome. I hope that that helps to illustrate clause 22(2) in particular and the interrelationship between the different clauses.

Christopher Chope: That does not answer the point about why, to take one specific example, Her Majesty’s Revenue and Customs, which exercises significant regulatory functions over business, is not covered by those principles. It is no good the Minister just asserting that it is not covered—why is it not?

Jim Murphy: I do not have to wait for this afternoon’s post to send the hon. Gentleman a copy of annexe B; page 84 of the report is on national regulators. The hon. Gentleman will be relieved—or angered; I am not sure—to see that Her Majesty’s Revenue and Customs is the first on the list of notable UK regulators.
It is considered that the principles in clause 19 and the code of practice in clause 20 should be covered by those regulators for which a Minister of the Crown may specify regulatory functions under clause 22(2)—as described in clause 23, which is about regulatory functions.

Christopher Chope: We shall resume this afternoon. Will the Minister guarantee that he will then be able to explain why Her Majesty’s Revenue and Customs is not to be subject to the provision? Simply saying that it is not included in annexe B does not deal with the substantive question of why that very important body, which exercises regulatory functions over business, is not to be included under the provisions of part 2.

Jim Murphy: Part 2 is about giving effect to the recommendations of the Hampton review, and Her Majesty’s Revenue and Customs was not part of our agenda on that review in respect of the regulators. That is my answer to the hon. Gentleman.

It being twenty-five minutes past Ten o’clock, The Chairman adjourned the Committee without Question put, pursuant to the Standing Order.
Adjourned till this day at One o’clock.